Investing in Israel: Ready for a raise: Israel's Chief Scientist's Office

The Chief Scientist's Office (OCS) has been fostering a lifeline for Israel's hi-tech sector since 1984*. Through grants and loans, the OCS has been delivering critical seed funds to select Israeli R&D companies; allocating more than NIS 1.2 billion in 2006 alone. They provide the much-needed early money for cutting-edge scientific advancements; yet their budget has been declining by roughly 10-15% annually over the past few years. Rather than shrinking the OCS allotment, the Finance Ministry should explore expanding the regular OCS budget. Here are a few reasons why:

Every shekel that is spent by the Chief Scientist's Office resurfaces within the Israeli economy several times over - sometimes even directly back into the Finance Ministry's coffers. As the grant-awarded new technologies begin generating earnings, these grants are converted into low-interest loans which are paid back through royalties arrangements. The government begins to recoup its money (plus interest) once the technology becomes successful. Typically about 30-40% of the OCS annual budget is from recurring royalty payments of years past.

Aside from these financial aspects, the grants/loans are also a source of validation for new technologies. Governments conduct rigorous due diligence and other criteria tests prior to handing over any money. Investors understand this fact and naturally prefer a technology that a local government body has committed to financially. Not only does the grant/loan provide direct funds to the developing company, it also attracts new investors, often foreign investors.

That being said, it is an unexplained wonder why the OCS budget has been shrinking an average of NIS 200 million annually for the past 5 years. If demand for these grants and loans is rising, why is the supply being reduced? Steady growth, technological advancements and falling unemployment-rates are indicative of Israel's economic potential. This potential needs to be realized; first by increasing the budget of the Chief Scientist Office and then by letting the free market do the rest.

* Based on the Encouragement of Industrial Research and Development Law (1984), the initial OCS office started in the late 70s for similar purposes.

David Anthony is a Managing Partner at 21Ventures LLC, a venture capital fund specializing in the investment and development of seed and early stage technology companies. He is also an Adjunct Professor at the New York Academy of Sciences where he teaches technology commercialization to Ph. D candidates, post-doctorates, and faculty from Colombia, NYU, Princeton, Yale, Rockefeller, Einstein and Sloan-Kettering. David has invested and continues to invest heavily in Israel. He also sits on the board of portfolio companies such as Agent Video Intelligence, Orion Photovoltaics, BioPetroClean, Cell2Bet, Energy Command and Control, Juice Wireless, Visioneered Image Systems, and VOIP Logic. For article feedback, contact David at danthony@21Venture.net